Ted (00:00.086)

Welcome to When a Loved One Dies, a legal guide. I’m Ted Gudorf of Gudorf Law Group, and I created this audiobook to give you comfort, clarity, and a better understanding of the legal, tax, and financial steps that may follow the loss of someone you love. It is never easy losing somebody that you love. Even worse, when a spouse, father, mother, or other loved one dies, there are legal matters to take care of.

The attorney tells you that a probate may be necessary, or if a revocable living trust is in place, there will be trust administration matters to tend to. The CPA wants to speak to you about tax strategies, while your financial advisor has IRA required minimum distribution, capital gain, and asset reallocation issues that she wants to implement. It is also overwhelming, especially during a time of great stress.

Where do you turn? Who should you trust? What about the bills that have to be paid? It’s enough to make even the strongest willed person want to crawl into bed and pull the covers tight over their head. Because of my unique educational and professional background, I understand how all three sides, legal, tax, and financial, of a probate or trust administration should interact while also serving in the trenches.

Helping families arrive at smooth and successful outcomes. My goal in writing this book is to first arm you with the general information that you will need while you work with your attorney, CPA, and financial advisor after the loss of someone dear to you. After that, we will review the firm’s unique process, the estate settlement program, that provides comfort and clarity when dealing with the legal, tax, and financial issues.

Following a loved one’s death. Now that you know what this book is, please allow me to tell you what this book is not. It is not a how to probate manual. I believe you should surround yourself with a team of qualified professionals who each understand their respective roles and can work together to get the job done right. There’s simply too much information one needs to know and too many traps.

Ted (02:23.384)

For the unwary to successfully navigate this on their own, especially in a time of grief. Therefore, we boil the essentials down so you may understand the big picture. To write something that covers each possible scenario and every detail, you would have to understand for a successful outcome would result in not one book, but several volumes of legalese. You wouldn’t have the time or stomach to read that anyway. If you are reading this book,

I assume that you have recently lost a loved one. Allow me to express my condolences. We’ve all lost loved ones. It’s a part of being human. But that doesn’t take away the pain. Like many, I have personally suffered the loss of loved ones, but also my legal practice involves interacting with people in a similar position to you every day. You’ll survive this moment. My hope is that these words provide a ray of comfort and clarity to

In what may feel like the darkest night. Since I am an Ohio attorney, this book is written with Ohio law in mind. Each state’s laws are different, so you will want to check with a qualified lawyer in your jurisdiction before acting. This book is not intended to convey specific legal advice to you or to form an attorney client relationship. No such relationship can be formed with me or my firm without a written engagement agreement. Therefore, any email, telephone or

Written or other communication with my office prior to a formal engagement would generally not be governed by any attorney client privilege. While every effort was made to convey current information, at the time that I wrote these chapters, probate, trust, and tax laws change constantly. Because I intended for this book to be a broad overview of the issues families face when a loved one dies, I intentionally omitted everything.

Many of the details, caveats, and exceptions to the general rules that may apply to specific situations. Chapter one. It is difficult to lose a loved one. Usually, one of the first places you will visit following the funeral is the office of the attorney that prepared the Will or Trust. The Will or Trust is not read to a Hollywood style gathering of the family.

Ted (04:48.193)

Rather, the lawyer will discuss the administrative steps that the executor of a will or trustee of a trust must take before distributions are made to the beneficiaries. Do not wait too long before visiting the attorney, since there are both legal and tax deadlines. With that said, visiting the attorney’s office the immediate days following the passing isn’t usually helpful as the shock of the loss will be

numbs the senses. My suggestion is to wait a week or more, unless, of course, the parties are only in town for a few days and need to initiate the administrative process prior to heading home. The question arises, what should you bring to the attorney’s office when a loved one dies? The following is a laundry list of items that may make that first meeting go more smoothly. One, the original of the last will

Revocable and or irrevocable trust, and any codicles or amendments. Two a certified copy of the death certificate. Three copies of most recent bank and brokerage statements. Four certificate of deposit statements. Five savings bonds. Six copies of deeds to real property. Seven copies of stock certificates.

Federal gift tax returns form seven hundred nine previously filed ten. Estate tax return form seven hundred six for predeceased spouse if any eleven. Information related to any unreported taxable gifts? twelve. Information regarding loans, notes, mortgages, and indebtedness. thirteen. Most recent credit card statements. fourteen. Amounts paid or forwarded for burial tax.

Clergy, service, and reception. fifteen. Addresses and contact information of family members who may be beneficiaries, as well as those serving as coexecutor and or trustee. sixteen. Names and contact information of financial advisors, insurance agents, CPA professionals, tax return preparers, and other such professionals. seventeen.

Ted (07:10.52)

Copies of ownership interests in closely held businesses, and any shareholders or partnership agreements that the deceased may have been a party to. eighteen. Prenuptial or postnuptial agreements, if any nineteen. Copies of trusts and related account statements, of which the deceased was a beneficiary at the time of his or her death. twenty. Copies of irrevocable trusts that the deceased created.

Such as an irrevocable life insurance trust, grant or retained annuity trust, qualified personal residence trust. twenty-one, copies of account statements, deeds, crummy notices, and other such relevant information if the decedent created an irrevocable trust. twenty two. Tangible personal property lists signed by the deceased that directed the distribution of such twenty-three.

Information related to any safe deposit box leased. 25. Life insurance policies and statements, including copies of the beneficiary forms. 26. Annuity information, including gift annuities. 27. Beneficiary claim forms for IRA accounts, four zero one Ks and annuities. Each situation is different, so there may be equally pertinent items that I have not included on this list.

Certainly not everyone will have all of the suggested items, and it will almost always take time to marshal all of this information. The more information that you can quickly provide your attorney, the better. You may have questions about what bills to pay and from what source. For reasons discussed below, the attorney may advise you not to pay certain bills at all. If there is a surviving spouse, certain bills can be paid from a joint account.

If there is no surviving spouse or as in second marriage situations, the couple kept separate finances and have separate beneficiaries in their estate plans, bills would generally be paid from the deceased’s assets. However, if the decedent’s accounts are titled in his or her name individually, the accounts cannot be accessed until the executor is appointed. The funds from those accounts would be placed in an estate account.

Ted (09:33.366)

And the bills would be paid from the estate account. If there is a possibility that the deceased’s assets are less than the sum total of all of their debts and obligations, you should meet with the probate attorney before paying any creditors. There are laws that govern which bills should be paid first and in what proportion. If you simply write checks until all the deceased’s assets are exhausted, you may end up personally liable.

To pay some of the deceased creditors from your own pocket. You may be relieved to learn that the attorney’s fees and costs associated with the administration of the estate or trust of the decedent are paid using the decedent’s assets and not the executor. Attorney fees are tax deductible to the estate andor trust, so don’t be afraid to seek legal advice. Next, we’ll review what exactly it means to probate a will. Chapter two.

What is probate? Many people are under the misimpression that if they are named executor in a will, they can go to the decedent’s bank or investment advisor’s office and gain access to the decedent’s assets by presenting the will. That is not the law of Ohio. A will does not have any force or effect until it is admitted by the probate court. Likewise, the person named as the executor in a will is

does not have any authority to act on behalf of the estate until they are appointed by the probate court. The probate court is a necessary step in the administration of a will. Some people also believe that if the value of their estate is less than the federal estate tax exemption, at the time that I wrote this book, that exemption stood at eleven point five eight million dollars, then probate is not necessary. That’s false too.

Almost any asset that is subject to disposition by your loved one’s will is actually distributed by the probate process. Understanding what probate means is therefore crucial to understanding these issues. Probate is the legal process under which the deceased’s assets are transferred to the beneficiaries named in the decedent’s will. This process starts when the last will and testament is filed with the probate court.

Ted (12:00.522)

In the state and county in which the decedent resided at the time of his or her passing. The executor named in the will files an application to probate the will and an application for appointment as executor. Assuming everything is in order, the court admits the will to probate and issues letters of authority, which give the executor the ability to transact business on the estate’s individually held accounts.

It does not matter whether bank and brokerage accounts are held in the same state in which the probate is opened. A bank account in New York is governed by the probate court in Ohio if the estate is opened in Ohio. If, however, the decedent owned real property in his or her individual name in another state, then an ancillary probate administration must usually be opened in the state that the property resides.

If the real estate is held in a trust, corporation, partnership, LC, or in joint name, then the ancillary administration is usually not necessary. Why is probate necessary? It’s not a conspiracy for attorneys to make fees, as many believe. The probate process actually protects the beneficiaries of your estate, any potential creditors, and of course, the taxing authorities.

Imagine that there was no probate process. Suppose in a codicil, a separate legal amendment, to his will your Uncle Ed left you his entire estate. But when Uncle Ed dies, your cousin brings a copy of his old will into the bank and asks that his accounts be distributed to him pursuant to the will. How does the bank know that this is really Uncle Ed’s last will? What if your cousin beat you to the bank and you didn’t realize it?

What recourse would you have once the bank already distributed to your cousin? The probate process protects against a scenario like this and many others. If you submit a will as the last will of Uncle Ed to the court and someone else submits a codicil to the will, to the same court, the court acts as a centralized system that can ensure Uncle Ed’s wishes are carried out. The executor marshals all of the assets of the deceased and

Ted (14:21.088)

And files an inventory with the court so all interested parties can determine in full light what the estate is worth. They can also question if the inventory is complete or may be missing assets. Ohio law provides that creditors have six months from the date of death to file a claim against the estate. There are laws that deal with creditors, how they are to make claims, and how the executor may object to any such claim.

I will discuss this in more detail in chapter three. Once all of the creditor claims have been dealt with, the executor submits to the probate court a list of all of the receipts and disbursements of the estate, as well as proposed distributions to beneficiaries and attorney fees. This document is called the account and must be approved by the court before final beneficiary distributions are made. The beneficiaries of an estate

Named in the will may be individuals, trustees of testamentary after death or continuing trust, chapters ten and eleven. Or in the case of a pour over will, chapter four, a trust created by the decedent before his or her death. All of the beneficiaries have the chance to object to any item listed in the account and may present those objections to the court. The probate judge decides if an objection has merit.

Once the account is approved, the proposed distributions are made and the executors discharge from further obligation as a fiduciary for the estate. So as you can see, probate is a strictly supervised court process and is a matter of public record. It is very hard for any monkey business to get by a judge. In contrast, a trust administration has less court supervision, which will be discussed in chapter four. Next, the

We’ll review the duties that you may have if you accept the responsibilities of an executor of your loved one’s estate. Chapter three Acting as the Executor. In Ohio we call the person responsible for administrating the estate the executor. An executor may also be referred to as the fiduciary of the estate. Just because you are named as the executor in your loved one’s will does not mean you must serve. Before acting as an executor,

Ted (16:46.176)

Understand that the role is a fiduciary one, you have a duty to act impartially when administering the estate. The executor has a legal duty to treat all of the other beneficiaries of the estate as well as the creditors of the estate fairly and in accordance with the law. Often the surviving spouse, adult child, or other family member is named to serve as executor, and often that person may also be a beneficiary.

A beneficiary serving as the executor has a conflict of interest since they have a personal stake in the handling of their fiduciary responsibilities. I am not suggesting a beneficiary, such as a spouse, child, or other loved one, should not serve. Rather that one must be especially conscious of this conflict and should work closely with their attorney to ensure that they fulfill their responsibilities without prejudice.

Usually this is accomplished without any issues. When serving as the executor, you will be interacting with the estate’s professional team, including the attorney, CPA, and financial advisor. The executor’s first course of action is to provide the attorney with the asset information of the estate as described in chapter one. If you have the original will, you will need to give it to the attorney, who will file it with the probate court and

Along with the application to probate will and application for authority to administer. These documents request that the will be admitted to probate, accepted as the will of the decedent, and that letters of authority be issued, giving you the authority to act as executor. Once you are appointed by the court, you or your attorney will provide certified copies of the letters of authority to the various banks and brokerage firms to transfer the assets to

Into the estate’s name. You may also open an estate checking account from which you can write checks and pay the deceased bills. In chapter 8, I discuss the decedents and estate bank accounts. The executor has a legal duty to preserve the value of the estate’s assets. When cash and investments are a part of the estate, the prudent investor rules apply. If the estate assets should drop in value significantly,

Ted (19:10.382)

During the course of the administration, and the executor did not follow the prudent investor rule, then the executor could be liable to the adversely affected estate beneficiaries. In chapter seven, I discuss how you should work with the financial advisor to limit this liability. The executor has no responsibility to notify creditors of the estate. Ohio law places the burden on creditors and

To present their claims against the estate within six months of the date of death, regardless of whether an estate has been opened in the probate court during that period. Sometimes it is prudent to wait six months before opening the estate for the purpose of avoiding presentment of claims by creditors. Before you contact a creditor of the decedent or attempt to open the decedent’s probate estate,

You should discuss the potential risk with an attorney. I’m often asked whether the executor or the beneficiaries are personally responsible for the decedent’s debts and obligations. The answer to that question is no. Another creditor question relates to invoices or bills in dispute. When a creditor presents a claim, the executor may reject it by sending a written rejection to the creditor. The rejection may be based upon a defect in the

In the way that the claim was presented to the estate or upon the merits of the claim. Upon rejection, the creditor then has two months to bring an action to enforce the claim. If no action is brought by the creditor, the estate is relieved from any obligation to pay it. If a creditor’s claim is filed and not rejected, the claim is presumed valid, and the court will not approve the account unless the claim is paid and released.

Once all creditor claims are satisfied or otherwise dealt with, the executor should work with the estate’s CPA or tax return preparer to ensure that all proper income and estate tax returns are filed. If a federal estate tax return is due form seven hundred six, the estate must file it and pay the taxes due within nine months of the date of the decedent’s death, I review taxes in greater detail in chapter nine.

Ted (21:35.828)

Once the creditor claims and taxes are finalized, the executor must file an account of the receipts and disbursements of the estate with the probate court. The account includes the following one, the date of death value of the assets subject to the estate administration. Two, gains or losses on the sale or disposition of the assets. Three. Income earned during the administration. four.

Expenses paid or reserves to pay expenses five, executor fees, six, costs of the administration, seven, specific distributions or bequests, eight, amount available for final distribution. Nine. Proposed final distribution to the beneficiaries. ten. Proposed attorney fees. The court will provide the beneficiaries with notice of the hearing on the account.

at which the beneficiaries may raise their objections, or the beneficiaries may waive notice to expedite court approval. Once the account is approved by the court, the fiduciary is discharged from any further duties to the court as executor. As you can see, this is a big job with a lot of responsibility. Ohio law entitles the executor to take a fee for his or her services. The amount of the fee is prescribed by statute.

And is a percentage of the assets administered in the estate. The fee is subject to ordinary income tax and must be declared on the executor’s personal tax return. Depending upon the circumstances of the estate, the executor may or may not wish to take a fee. In addition to fees, the executor may be reimbursed for any cost that he or she forwarded on behalf of the estate.

Costs may include tips, funeral expenses, reception costs, and such other reasonable expenses paid out of the executor’s own pocket. Cost reimbursement is not taxable as income to the executor and is a valid deduction for the estate. I’m often asked whether other family members’ costs of travel to the funeral can be reimbursed as an estate expense. The general answer to this question is no. The exception is when the family member

Ted (23:57.578)

is acting as an agent of the estate to assist the executor with a duty or obligation. Any reimbursements or fees paid to agents who assist with these endeavors must be reasonable and will be reported on the account, which all of the other beneficiaries will be entitled to review. Now that you understand the basics of a probate administration, let’s compare that to when your loved one dies with no assets in his or her individual name.

But instead has their assets funded into a revocable living trust. Chapter four. What is a trust administration? There’s much confusion for family members when a loved one dies with a revocable trust. Often they believe that the successor trustee can simply wrap things up and distribute the trust assets right away. That’s not the case. When all or some part of the decedent’s assets are

Are held in a revocable trust at the time of his or her death, then the successor trustee, see chapter five, has many of the same duties that the executor has when probating a will, as I described in chapter two. Simply said, whoever is serving as trustee must, under Ohio law, one, marshal the assets of trust.

Change title of the accounts from the decedent as the original trustee of the trust to whomever is acting as trustee of the administrative trust. two. Obtain date of death values of the trust assets. Three. Preserve the trust assets prudent investor rule during the trust administration. Four. File all necessary tax returns and ensure that taxes are paid. Five. Prepare accountings to the beneficiaries and

And six, make distribution to the beneficiaries or establish beneficiary trusts, chapters ten and eleven, created under the terms of the decedent’s trust. The difference between what the executor does in a probate administration and what a trustee must accomplish in a trust administration is that the probate administration is overseen by the probate court. It is a public process that requires issuance of letters of authority

Ted (26:21.452)

Before the named executor may act. Further, to open a probate administration requires payment of a filing fee with the probate court. Consequently, probate administration is often more time consuming and more expensive than a trust administration. There are significant differences between a trust administration and a probate administration. Determining the most recent and therefore governing trust document and any amendments is the first difference.

Recall my Uncle Ed story in chapter two, where the probate court ruled which of Uncle Ed’s wills and codicills controlled the disposition of his estate assets. In a trust administration, the trustee must have confidence that she is operating with the most recent document. That is why it is important for the trustee through her attorney to forward what she believes to be the most recent documents to all interested parties.

This gives all the right to present any other trust document that may amend or otherwise conflict with the documents that the trustee is aware of. If the trustee and any other party can’t agree which of the decedent’s documents control, then the trustee is likely to institute a civil court action to determine the proper beneficiaries. After filing the necessary tax returns and either making payment or

Or reserving sufficient funds for taxes, the trustee must work to prepare accountings to the beneficiaries and eventually make distribution of the assets. Revocable trusts commonly contain continuing trusts for the surviving spouse, children, or other family members. Here, the trustee will transfer the assets from the administrative trust to the trustee of the continuing trust.

Since there is no court to discharge a trustee from liability like there is in a probate, it is important for the trustee to obtain consents and waivers from the trust beneficiaries, indicating that they have had the opportunity to review the trust, to verify the trust inventory, and to approve or waive any objection to the accounting. The attorney for the trustee can assist in limiting the trustee’s liability to

Ted (28:42.232)

By taking advantage of Ohio statutory limitation language. If the appropriate language is properly placed on the appropriate accounting documents, a beneficiary is limited to a 30-day period to challenge the accounting. One final comment sometimes there are assets in the trust as well as in the decedent’s name individually. When this happens, you have a simultaneous probate and trust administration.

This isn’t the best situation and usually happens because a revocable trust was only partially funded during the grantor’s lifetime. Ohio law does not provide for coordination of the two administrations, and the separate obligations of the trustee and executor with respect to estate and trust assets must be met. Next, we’ll review the duties that you may have if you are named and choose to accept the responsibilities of

of the Office of Trustee for your Loved One’s Trust. Chapter five, Acting as Administrative Trustee. The original grant of a revocable trust will usually serve as the trustee of the trust until his or her disability or death. Upon the grantor’s death, an administrative trustee serves to perform all of the necessary functions described in Chapter 4. This office may also be referred to as a

Successor trustee. Just because you are named as the administrative trustee in your loved one’s trust does not necessarily mean that you must serve. Before acting in this capacity, understand that the role is a fiduciary one, meaning that you have a duty to act impartially in administering the trust. Like the executor of a probate estate, the trustee of a trust is a fiduciary. He or she has a duty to act impartially in.

For all interested parties of the trust, including the decedent’s creditors and trust beneficiaries. The trustee of the trust is often a spouse, child, or other family member who is also a beneficiary of the trust. Just like my discussion in chapter three, the trustee would have a conflict of interest and should be careful to work with their attorney to ensure that they don’t act in their own self-interest.

Ted (31:06.722)

When acting as the administrative trustee, you will be interacting with the trust professional team, including the attorney, CPA, and financial advisor. Similar to a probate, the trustee’s first course of action would be to provide the attorney with the trust’s current asset information as described under chapter one. The original trust is not filed with any court, although the will may be deposited. If there isn’t already a trust checking account,

With the administrative trustee named as the account holder, a trust checking account will be opened to pay the deceased bills. In chapter eight, I discuss further the decedent’s trust bank accounts. During the administration of the trust, the trustee must follow the prudent investor rules to preserve and protect the trust assets. If the value of the trust assets should plunge under the trustee’s watch as a direct consequence of the trustee’s failure,

To follow the prudent investor rules, then the trustee can be held individually liable to the beneficiaries for the amount of such loss. Like the probate estate, the trustee will work with the trust CPA to ensure that all taxes are properly paid. If a federal estate tax return is required, Form 706, the estate must file it and pay the taxes due within nine months of the date of decedent’s death.

I review taxes in more detail in chapter nine. Once the trust administration expenses and taxes are finalized, the trustee must provide an accounting to the trust beneficiaries. Usually, the trustee will give this information to the attorney, who will put it in the proper legal form to serve it on all of the beneficiaries. Since there is no court overseeing the trust administration,

The attorney will work to utilize the Ohio Trust Administration statutes to minimize the trustee’s liability and to limit the amount of time that the beneficiaries have to object to the accounting. The accounting includes the following one, the date of death value of the assets subject to the trust administration. Two, capital gains or losses on the sale or disposition of the assets.

Ted (33:30.826)

Income earned during the administration four expenses paid or reserves to pay expenses five professional fees, legal accounting tax, six. Trustee fees, seven, costs of the administration, eight, specific distributions or bequests. Nine. Amount available for final distribution. And ten. Proposed final distribution to the beneficiaries for

or to continuing trust as provided under the original trust, chapters 10 and 11. As you can see, this is a large job with significant responsibilities. Ohio law entitles the trustee to take a fee for his or her services. A reasonable trustee’s fee is not, however, expressly prescribed under the statute. Comparing the trustee’s responsibilities to that of an executor,

One might surmise that the fees should be comparable. A trustee’s fee is ordinary income subject to income tax. Depending upon the circumstances of the estate in question, the trustee may or may not wish to take a fee. In addition to fees, the trustee may be reimbursed for any costs that he or she advanced on behalf of the trust. Costs include travel, hotels, meals, rental car, gas, phone, and

And such other reasonable expenses paid out of the trustee’s own pocket. Cost reimbursement is not taxable as income to the trustee, but some costs may be taken as a deduction by the trust on its income tax return in certain circumstances. Now that you understand the basics of both probate administration and trust administrations, let’s examine how to deal with your loved one’s automobile and tangible personal property.

Chapter six Automobiles and Tangible Personal Property In Ohio, a surviving spouse is entitled to an unlimited number of motor vehicles up to a total value of sixty five thousand dollars that are held solely in the decedent’s name, plus one boat and one outboard motor. However, if the deceased spouse had a will that specifically bequeathed a vehicle to another person,

Ted (35:52.002)

That vehicle is not eligible to be transferred to the surviving spouse. Any liens on a vehicle are not released by a transfer to the surviving spouse. The transfers to the surviving spouse are made by taking the titles and a certified copy of the death certificate to the local clerk of courts title office. These transfers are authorized by statute and do not require a probate estate.

To be opened or approval by the court. Other vehicles, such as motorhomes, boats, and large trucks, must be probated. If a vehicle is titled in the name of the trustee of the decedent’s trust, the trust governs transfer and the surviving spouse cannot transfer the vehicle under the rule discussed above. Tangible personal property such as rings, watches, jewelry, china, guns.

Baseball card collections are distributed pursuant to the will or trust or a separate list referenced by the will or trust. The law requires that the list simply be signed and can be created either before or after the will or trust is made. One of the more difficult questions involves the cost of shipping tangible personal property to the beneficiary. If the will or trust specifically addresses this question, then there is no question.

But where the will or trust is silent, the executor or trustee can spend a reasonable sum shipping the items and charge the costs against the estate. How about the shipment of a grand piano? Here it is probably reasonable for the beneficiary receiving the item to pay for some part or all of the cost of shipping. Otherwise, the remaindermen beneficiaries, those beneficiaries who receive a percentage of the estate

After all of the specific bequests are made, indirectly bear the burden of the cost of shipment. When there is no tangible personal property list, then the estate’s attorney should review the will or trust to determine the process under which the executor or trustee should offer and dispose of the property. Here, it is going to be important to have a valuation specialist identify tangible.

Ted (38:16.824)

Personal property assets that have any value and to place a value on those assets. In estates that must file a federal estate tax return, this is vitally important. Even though the tangible personal property is not subject to the probate process, it remains an asset of the estate that should be valued and should therefore appear on the federal estate tax return. The executor or trustee may decide to hold a round robin selection.

Allowing each beneficiary to choose an item then rotate until everyone has an opportunity to make selections. The total value of the assets selected would then be counted as a distribution, and other assets such as money, stocks, bonds, and such can be adjusted so that at the end of the administration all beneficiaries are treated fairly so that each ends up with the proper proportion of the value of the estate after considering all items inherited.

Usually the estate will have a significant amount of tangible personal property that doesn’t have any value to anyone. Clothes, old furniture, costume jewelry, food, makeup, supplies, and similar items are more of a burden to dispose of than holding any value. After asking any of the beneficiaries if there are any such items that they would like, it makes sense to donate the bulk of it to charity. Another alternative is to seek an auctioneer or a consignment store.

To see if the estate can reap any value from these items. More expensive items that none of the beneficiaries want should be auctioned or sold. Valuable artwork and jewelry, for example, can be valued and sold or consigned rather easily. So can automobiles that none of the beneficiaries desire. Keep in mind that one of the main duties of the executor and trustee is to preserve the value of the assets of the estate. In the next chapter,

I’ll review how an executor of the probate estate or the trustee of a trust should interact with the estate’s financial advisor. Chapter seven Working with the Financial Advisor I mentioned earlier that the executor of a probate estate and the trustee of a trust have a duty to protect and preserve the assets during the estate administration, as well as following the prudent investor rule. So what does this really mean?

Ted (40:43.298)

Should the executor or trustee invest all of the money in the stock market? Should they instead convert everything to cash? How does one satisfy the prudent investor standard? The first thing to do is to meet with the estate’s financial advisor. This usually means to meet with whomever the decedent employed as his or her financial advisor. However, you may meet with anyone that you have trust in. My thought is

If the decedent’s financial advisor did a good job, there’s good reason to stay with that professional, at least through the administrative process. It becomes more difficult when the decedent managed his own investments without the help of a professional financial advisor. Many individuals open accounts through discount and online brokerage houses such as Fidelity, Vanguard, ETrade, and others. When this is the case,

I suggest that the successor trustee or executor find a reputable advisor who is willing to review the portfolio to determine if there are any glaring problems. The advisor can be paid from estate assets for his or her expertise, and it is well worth the liability protection because simply staying the course with what the decedent owned may not be the prudent thing to do. Why might that be? First, the

The decedent may have retained certain stocks or mutual funds because selling them would have resulted in the recognition of capital gains, and hence the payment of income tax on those gains. Generally speaking, however, these unrealized capital gains vanish on the death of the account owner. The reason the capital gains vanish is due to something in the tax code known as the step up in tax cost basis. This is best explained by example.

Assume that Jim bought Coca-Cola stock at $1 per share, and that over the course of several years the stock increased to eleven dollars. If Jim sold the stock during his lifetime, he would have recognized a capital gain of ten dollars per share, eleven dollars selling price minus one dollar cost basis, and paid tax on the capital gain. That capital gains tax served as a disincentive for Jim to

Ted (43:07.554)

To sell the stock, even if the stock grew to an abnormally large holding in his portfolio. Generally speaking, a portfolio should not have too many eggs in any one stockholding basket. Ask anyone who owned a great deal of Enron stock in the nineteen nineties. Many held on to the stock during its rise, only to see the value of their portfolio diminish to nothing. The fall of Enron made many one time millionaires penniless.

Returning to the concept of step up in tax cost basis. When Jim died, his estate or trust received a step up under the tax code to the date of death fare market value of the stock, in my example eleven dollars. So if the executor or trustee sells the stock the next day, there is no capital gain recognized, eleven dolling price minus eleven dollar new tax cost basis.

What this means is that the executor or trustee is not constrained by taxes to act as a prudent investor would and therefore has the opportunity to diversify holdings that might otherwise constitute too large of a percentage of a portfolio. Another reason to review the holdings is that the executor or trustee’s duty is to preserve and protect the assets in the estate or trust. They do not have a duty to maximize return and

During the administration, although they may have to generate income for a surviving spouse or other beneficiary. Here, the advice of a good investment professional can help the executor or trustee determine the proper holdings during the period of administration to achieve the goals of the beneficiaries while at the same time guarding against a drop in the market during the relatively short time period required to complete the administration.

Finally, the executor or trustee may have to liquidate portions of the portfolio to pay for estate taxes, professional fees, real estate carrying costs, or to meet such other expenses that may be necessary during the administrative period. Here, good professional advice may be worth its weight in gold to determine which assets might best serve to pay these expenses. Don’t underestimate how good advice will be.

Ted (45:30.946)

can actually save a great deal of money in the long run. Next, we’ll review the bank accounts that the executor or trustee may open, close, or retain during the probate and trust administration. Chapter eight, Bank Accounts When opening a probate estate or trust administration, the executor or trustee needs to open an estate, checking account, or a trust checking account, respectively.

This account will receive the income earned and pay all the expenses incurred during the administration. Running all of the income and expenses through one checking account will make it simpler to compile the accountings that the executor or trustee must report to the beneficiaries as described in chapters two and four. By having the CPA or attorney reconcile the monthly checking account, the accountings will be readily available when necessary.

Accountings are usually provided at the end of the calendar year or at the end of the administration, depending upon the preferences of the beneficiaries. In order to open a bank account for a probate administration, the executor will need to present a copy of the letters of authority, granting the executor authority to act on behalf of the estate, and a taxpayer identification number. The attorney’s office will usually assist the executor in obtaining the taxpayer identification number.

In order to open a bank account for a trust administration, the trustee should present a copy of the certification of trust indicating his or her appointment as successor trustee and the trust taxpayer identification number. The account can be opened in the jurisdiction where the estate or trust administration is conducted, or it can be opened in a bank branch near wherever the executor or trustee is located. Surviving spouses are

often ask me whether they should close joint accounts, especially when there isn’t a probate estate open. My general advice is to retain the joint accounts for at least one year. From time to time, the surviving spouse may receive a check in the deceased spouse’s name. Without a joint account to deposit the funds to, a probate might have to be opened just to take care of the check. The fees and costs of the probate

Ted (47:53.72)

don’t usually justify opening for a check or two, so otherwise the money would be lost. Another common question concerns joint accounts, especially those with adult children. A client will often open a joint checking or savings account with a child with rights of survivorship or as a pay on death account. To the child with the intent that the account be used for funeral expenses or such other expenses incurred immediately after death.

The problem is that the child has no legal obligation to use the account for those expenses, and the joint account circumvents the provisions of the will or trust that direct all assets be split among the beneficiaries in the stated percentages. When an adult child asks what they should do with the account, I tell them that if their parent had them on the account for convenience purposes and not necessarily convinced.

To take the account as their own, then they should consider abiding by their parents’ wishes and use the account as it was intended. Another question is what to do with the automatic payments that are scheduled out of the account, such as mortgage, electric, and the like. If that regular account is closed and the payments still need to be made, then it will be important to remember to change those account payments before closing the old account.

In our next chapter, I’ll review the CPA and tax return preparer’s role in the estate and trust administration, including the information they’ll need to do their job. Chapter nine, working with the CPA and tax return preparer. When I take on a new estate planning client, I have them complete a client organizer that, among other things, asks him or her to rate concerns from high to low.

Estate taxes commonly rate high, even when the client’s assets are nowhere near the federal estate tax threshold, which at the time of my writing this chapter was eleven point five eight million dollars. Why is that? Do people assume that they are going to become that wealthy, or do they not really understand estate taxes? My personal hunch is that it is the latter. The income tax is a tax on the receipts.

Ted (50:16.396)

That someone earns or receives over the course of the year. Rental income, dividends, interest, and earnings all constitute income. An estate tax is a tax on the value of the decedent’s holdings, a tax on his balance sheet after death, if you will. A federal estate tax return is required only when the estate’s value, plus gifts that the decedent made during his lifetime that exceed annual exclusion gifts are.

Those annual gifts to any one beneficiary that exceed fifteen thousand dollars under twenty twenty law exceeds the exemption amount eleven point five eight million dollars in twenty twenty as noted above. Consequently, most estates won’t have to file an estate tax return. When there is a surviving spouse, the estate may want to file a return even when the value of the decedent’s estate is less than the exemption amount.

The purpose of such a filing is to take advantage of a feature of the estate tax law known as portability, which was introduced into law in twenty ten. Portability allows transfer of a deceased spouse’s unused gift and estate tax exemption to the surviving spouse. Filing an estate tax return is a requirement of transferring the exemption, even if no estate tax will be due.

If it is possible that the surviving spouse’s taxable estate might exceed his or her exemption amount, adding the unused exemption of the deceased spouse may reduce or eliminate federal estate tax. Here’s an example. Assume that Roger died with a taxable estate of ten million dollars in a year when the federal exemption was eleven point five eight million dollars. Roger made no taxable gift transfers during his lifetime.

Assume that Roger’s surviving spouse Susan has assets that exceed fifteen million dollars. Here, Susan will want to file Roger’s estate tax return so that the unused portion of his estate tax exemption eleven point five eight million dollars minus ten million dollars equals one point five eight million dollars would be added to her exemption eleven point five eight million dollars plus one point five eight million dollars equals.

Ted (52:38.42)

equals thirteen point one six million dollars, thereby minimizing her federal estate tax when she dies. Just because an estate is not taxable does not mean that the CPA will have nothing to do. There’s a myriad of other tax issues, most of them related to income, that a CPA will be knowledgeable about. When a loved one passes away, the CPA will need a variety of forms and information

Depending upon the circumstances of each case. If a federal estate tax return is going to be filed for any reason, then the CPA will need all asset information, including date of death values. She will also need appraisals of any real estate owned or partially owned by the decedent, as well as a Form seven hundred twelve on any life insurance proceeds that pay out on the decedent’s life.

You will want to give your CPA copies of any gift tax returns filed by the decedent andor his spouse, federal Form 709. If the decedent was the surviving spouse in the marriage, and if the first deceased spouse’s estate filed a federal estate tax return, Form 706, then you should supply the CPA with that form.

The CPA will need a copy of any trust created by the decedent as well as any trust that the decedent was a beneficiary. He may need an inventory of the assets of those trusts. The CPA will also want a copy of the decedent’s will. If the decedent owned any IRA four zero one K or similar retirement accounts, the CPA will need to know the date of death balances of those.

And who the beneficiary of each account might be. It will be important to let the CPA know about any safe deposit box, the inventory of any tangible personal property that has any value, and a copy of any writers to a homeowner’s insurance policy that insured valuable assets such as jewelry. The CPA will need an inventory of automobiles and other vehicles, such as boats and ATVs.

Ted (54:57.216)

If a federal estate tax return is not necessary, then the CPA will need most everything that she would otherwise need to file the necessary income tax returns, but will also need a few other odds and ends that are not ordinary, including funeral expenses, attorney and trustee professional fees, as those are all deductible. An IRA required minimum distribution RMD information.

To ensure that the proper RMD rules have been made to avoid the excise penalty tax. The date of death value of the decedent’s assets will also be important to adjust the tax cost basis of those assets as described in chapter seven. The beneficiaries of those assets will want to know how much to report as capital gains if and when they sell those assets. And because following the decedent’s death

The new tax cost basis will be the date of death value. This information is necessary. That usually means that real estate will have to be appraised as well. If there are ongoing testamentary trusts benefiting the surviving spouse or other beneficiaries, then the CPA will be filing Form ten forty ones, which are fiduciary income tax returns. If there are any ongoing trade or business assets that

Including S corporation stock, certain elections and or certain distributions need to be made within definite time deadlines. Failure to make the election or distributions could result in the loss of S status and the imposition of a corporate layer of income tax. To avoid this adverse result, it will be important to advise the CPA of any and all business holdings.

And to discuss the various options that the executor or trustee may have to minimize adverse tax consequences. In most cases, the decedent had a CPA or other tax return preparer that he or she used and relied upon over the years. In cases where decedents filed their own tax returns or who use discount storefront tax return preparers, HR block, Jackson Hewitt, and Liberty Tax are common examples.

Ted (57:20.918)

It’s usually a good idea to engage the services of a knowledgeable CPA. As you might surmise from this chapter, not filing the proper returns or not making timely tax elections where necessary can lead to significant tax liability and losses. No one wants to pay more taxes than they have to. Paying a good CPA usually results in overall savings. Chapter ten.

Continuing Trust for Beneficiary Spouse. Once the expenses of administration have been paid and tax returns filed, it’s time to move out of the administrative phase and start distributing assets. When there is a surviving spouse, the trust will often continue for his or her benefit. When this is the case, the trustee may need to or be required to fund assets into a credit shelter or bypass.

or marital trust. The purpose of a credit shelter or bypass trust is to take advantage of the deceased spouse’s remaining federal estate tax exemption. If the decedent died with three million dollars of assets and his available federal estate tax exemption at death was five million dollars, then all three million dollars into the credit shelter or bypass trust.

If the value of the decedent’s trust is greater than the decedent’s available exemption amount, then the amount that exceeds the exemption is usually transferred to the marital trust, which qualifies for the unlimited federal estate tax marital deduction, thereby deferring any estate tax until the surviving spouse’s death.

For example, if the decedent died with seven million dollars of assets and his available federal estate tax exemption was five million dollars, then five million dollars would be funded into the credit shelter or bypass trust, and the excess two million dollars would be funded into the marital trust. No estate tax would be paid at this time since the marital trust qualifies for the marital deduction.

Ted (59:36.544)

In twenty ten, the estate tax law was changed to allow for portability, which means that any unused exemption for one spouse can be used for the other so long as a timely federal estate tax return is filed. This means that there is less use of credit shelter or bypass trusts and more use of marital trusts because it is no longer necessary to use a credit shelter or bypass trust to take advantage of

Of the deceased spouse’s estate tax exemption. Also, a marital trust, unlike a credit shelter or bypass trust, allows the tax basis of the trust assets to be stepped up twice, once upon the death of the first spouse and again on the death of the survivor. In larger estates where the generation skipping tax exemptions are being used, there could be a further subdivision of the trust held for the surviving spouse.

I discuss these trusts in greater detail in chapter eleven. These are all fairly advanced topics that I am not going to cover in great detail here. My firm’s probate and trust administration process, the estate settlement program that I describe in chapter seventeen will work to help the client both understand and make decisions that should result in the best tax outcome. Once the spouse’s trust is funded, then certain things need to happen.

One, the attorney or CPA will typically apply for a new taxpayer identification number for the trust. Two, the financial advisor will work with the trustee. In many cases, the surviving spouse serves as trustee to discuss which assets are funded into the credit shelter or bypass trust and the marital trust. Three, a final accounting describing the income, expenses, and

Capital gains and losses, as well as other significant items, will be prepared and signed off by the surviving spouse. The credit shelter or bypass and marital trust will benefit the surviving spouse for the rest of her life. Income is usually distributed and paid to her for her normal everyday living expenses. If the income is insufficient for her needs, and if the testamentary trust provides for property.

Ted (01:02:03.022)

Principal distributions, then additional amounts may be distributed for her health, maintenance, and support. A credit shelter or bypass trust, however,

may benefit a group of beneficiaries, including surviving spouse, children, and grandchildren. When a group of beneficiaries all benefit from a trust, then it will be important for the trustee to meet with his or her team of professionals to determine when and how distributions should be made. Keep in mind that the trustee still has the duties to administer the trust impartially, as discussed in chapters three and four.

as well as following the prudent investor rules. Unless the trust is a beneficiary deemed owner trust, B D O T, an income tax return should be filed annually. Although when the trust distributes out all of its income, no taxes paid. Instead, the beneficiary, the surviving spouse, who receives the income, will pay the income tax at his or her own rates. Next, we’ll discuss when a trust

Leaves continuing trust for children and grandchildren. Chapter eleven. Continuing trust for beneficiaries, children, grandchildren, and others. While many trusts distribute assets outright to beneficiaries such as children and grandchildren, others direct for a distribution into a continuing trust for the benefit of those beneficiaries’ children, grandchildren, and other beneficiaries.

Oftentimes these distributions don’t occur until the surviving spouse is deceased, and the marital trust distributes out to the children or grandchildren, but in some cases the children or grandchildren trust shares are created immediately upon the settler’s death. The segregation of various assets into the children or grandchildren’s shares must be carefully considered. If there is a home or other property that one child wants to have that the others do not

Ted (01:04:25.432)

The property must be appraised so that when all of the shares are ultimately distributed, every beneficiary is treated fairly and receives value in proportion to the relative percentages that the trust document provides. For example, assume that Sally and Stan are both named as equal beneficiaries of Mother’s Trust. Mother’s Trust owns a residence worth two hundred thousand dollars and six hundred thousand dollars of stocks, bonds, and money.

And mutual funds. Sally wants mother’s residence as part of her share, and Stan is fine with that arrangement. In the end, the trustee will distribute the two hundred thousand dollars residence to Sally along with two hundred thousand dollars of the stocks, bonds, and mutual funds. Stan receives four hundred thousand dollars of the stocks, bonds, and mutual funds so that they are treated equally. The above example is an oversimplified version of.

of the decisions that the trustee, attorney, and CPA must make. The trustee must, for example, consider factors other than fair market value to ensure that the beneficiaries are being treated fairly. One example of those considerations is the tax costs associated with the assets being distributed to the different shares. I discussed the step up in tax cost basis, briefly in chapter seven.

You may be wondering why don’t all of mother’s assets in my example have no capital gains to consider. The reason rests in chapter ten, where I discuss ongoing trusts for the surviving spouse. If the children or grandchildren are receiving assets from a trust held for the surviving spouse that does not qualify for the marital deduction, a family trust or credit shelter trust is a good example of this, then there won’t be a step up at mother’s death.

If mother’s residence and her stocks, bonds, and mutual funds all have a different tax cost basis, then that may alter which assets are to be distributed to each beneficiary. When I refer to tax cost basis, I am pointing to unrealized capital gains that will be taxed when the assets are liquidated. The trustee must fairly allocate the unrealized gains between Sally and Stan’s shares.

Ted (01:06:54.36)

So as not to give one of the beneficiaries a materially larger tax burden than the other, unless the beneficiaries agree to a different arrangement. So before making distribution of the assets of the estate or trust to the children or grandchildren’s shares, it is important for the trustee to prepare an accounting and schedule a proposed distribution that details all relevant income, expenses, capital gains, and other material items.

The trustee will want all of the beneficiaries to consent to the accounting and schedule a proposed distribution and waive any objection to it prior to making distribution. A trustee who goes ahead with the distribution before obtaining all consents and releases runs the risk that a beneficiary may file a lawsuit against the trustee after the assets and money leave the trustee’s control. The beneficiary may claim that they didn’t receive everything to

That they were entitled to, or that the distribution plan was unfair to that beneficiary. If the trustee has not yet made distribution, then the trustee has the opportunity to consider the objection and change the schedule, if that is appropriate. If the trustee doesn’t believe that the objection has any validity, then at least he still has the funds to pay legal, accounting, and other expenses associated with the investigation, defense,

And resolution of any such challenge. If, on the other hand, the trustee has already made distribution, then the trustee could be in the undesirable position of either having to defend the lawsuit out of his or her own pocket, or actually having to seek a refund of amounts that were made to other beneficiaries wrongly, if that turns out to be the case. Even more troubling, if the trustee is determined to have made a wrongful distribution.

The trustee may have to satisfy any damages out of their own pocket. For these reasons, it is imperative that before making final distribution or making distribution into a trust created for the beneficiaries that waivers and consents be obtained. Once the amounts that are to be transferred from the decedent’s trust to the children’s trust shares are determined, the actual transfer must be made.

Ted (01:09:19.062)

Like the marital trust, the trustee must apply for a taxpayer identification numbers and typically uses those numbers to establish bank or brokerage accounts for the trust. If real property is being distributed, then deeds must be prepared. The trustee must be careful to reserve amounts to pay final professional fees, accounting, legal, and other such fees that may apply. Taxes.

And expenses before transferring assets into the children’s or grandchildren’s trust shares. In larger estates that may be taxable, it may be important to segregate the children or grandchildren’s trust shares into exempt and non-exempt shares. Hopefully, the trust document either directs the trustee to so segregate or allows the trustee to do this on his own.

The exempt and non exempt portions refer to an exemption from the generation skipping transfer tax. The GSTT is a penalty tax imposed on top of the estate tax when amounts above the GSTT exemption amount are distributed to individuals who are two or more generations below the settler of the trust. The idea behind the tax is to only allow a certain amount of assets to

To be held in estate tax-free trusts that avoid taxation as each generation of a family dies off. I am not going to go into all of the nuances of the GSTT here, except to say that if it applies to a situation, it is vital that qualified professionals are involved in the segregation of the assets and the transfer of those assets to the trust shares in order to minimize or avoid the application of the GSTT to

To the given situation. In many cases, the administrative trustee of the decedent’s trust will transfer the assets to another trustee who will be the trustee who administers the children’s and grandchildren’s trust. Oftentimes it is the child or grandchild himself who is the trustee for his or her own share. Sometimes, however, it might be a bank, trust company, or other trusted relative.

Ted (01:11:41.418)

A common example of this is when a decedent’s child is named as the trustee for amounts that are to be held in a continuing trust for a grandchild. The terms of each trust share will govern the distributions going forward. Like the marital trust discussed in chapter ten, an income tax return will likely be filed annually, unless it is a BDOT, although when the trust distributes out all of its income.

Then no tax is paid. Instead, the beneficiary, the child or grandchild, who receives the income will pay the income tax at his or her own rates. Chapter 12. Life insurance and annuities. Life insurance and annuities are examples of assets that may fall outside of the estate and trust administration. This is due to the fact that these assets are generally distributed pursuant to a designation of beneficiary documents.

Life insurance is typically owned by the decedent, but may be owned by the decedent’s spouse, children, or by an irrevocable life insurance trust. ILIT. First, I’ll review what happens when a family member owns the life insurance. After that, I’ll review the ILIT when a family member owns and is designated as the beneficiary of a life insurance policy, ensuring the life of the decedent.

Then a claim form must be filed with the company. The company will typically ask you to submit the original life insurance policy itself, along with the claim form and a death certificate. Once processed, the company will then issue checks to the beneficiaries in the percentages indicated on the designation of beneficiary document. When the decedent’s estate is taxable, it will be important to request an IRS form seven hundred twelve.

From the life insurance company when making the claim on the policy. This is an important document that you will want to give to your attorney or CPA who will be preparing the federal state tax return Form 706. While life insurance is usually income tax-free, it is not always a state tax free. That is why the Form 712 is necessary. Failure to file a Form 712 when one is necessary greatly increases the likelihood.

Ted (01:14:08.46)

Of an IRS audit on the federal state tax return and the assessment of additional taxes, interest, and penalties. Life insurance can be more difficult if the decedent owned the policy but was not the insured. An example of this is when mother owns the policy on father’s life, but mother dies first. The policy is not ripe to make a claim since the insured father is still alive.

But now father can’t transfer the policy or change the beneficiary designations, borrow against the policy, or cash it out, as mother, who is now deceased, owns the policy. In this situation, the life insurance policy will be a probate asset subject to the terms of mother’s will. If mother’s will gives everything to father, then when the probate court process is complete, father will now own the policy on his life and

And can do with it as he pleases. If instead mother’s will is a poor overwill, typical with those who also have revocable living trusts, then the policy will end up with the trustee of the trust for distribution in accordance with the trust terms. Irrevocable life insurance trusts ILIT trusts that own life insurance policies are also quite common. Here, the ILIT owns the life insurance policy.

And is almost always also the beneficiary of the policy. Even though the policy is not owned by the decedent, when the decedent has a taxable estate, it will be important for the ILIT trustee to obtain a Form seven hundred twelve when making a claim on the policy as described above. The issues surrounding ILIT trusts could fill up another book, so I won’t go into all of the details but

That your attorney should lead you through when engaged to assist the ILIT trustee with the claim, accountings, taxes, and distributions. It is important to note, however, that the beneficiaries of the ILIT may or may not be the same as the beneficiaries of the will or the revocable trust. Similarly, the trustee may or may not be the same as the trustee named in the revocable trust.

Ted (01:16:30.25)

Nonetheless, it’s important for the trustee of the ILIT to coordinate efforts with the attorney and CPA for the estate to make sure that all necessary reporting requirements are satisfied and that the beneficiaries are properly notified of the insurance claim, income earned, taxes and expenses paid, and schedule of proposed distributions consented to before final distributions are completed.

Unlike life insurance, which is generally income tax free, annuities are taxable and pose several challenges when administering an estate or trust. Most annuity contracts feature tax deferred growth of principal, meaning that the initial investment grows tax deferred. But when distributions are made, a portion is considered a partial return of principal income tax free, and a portion is taxable income.

Legal, tax, and financial professionals refer to these types of assets as income with respect to a destined IRD assets, annuities, individual retirement accounts, and four o one K accounts are all IRD assets. I review IRA four o one K and other retirement account assets below in chapter thirteen. IRD assets do not enjoy a step up in tax cost basis or

described in chapter seven as do traditional investment accounts that contain stocks and mutual funds, unlike IRA accounts, and four zero one Ks that are all governed by standard laws regarding their distributions and income taxation, annuity contracts can all be very different. Some annuity contracts terminate at death with no benefits, while others may continue on for a surviving spouse and or other beneficiaries.

Some require a lump sum distribution of benefits at death, while others can continue on for a term of years or for the lifetime of the beneficiary. Still others contain tax free life insurance as a death benefit. Which options are available and what options are chosen may have a real economic effect on the annuities beneficiaries. While one option may look more appealing from a distribution standpoint than

Ted (01:18:51.722)

It may also have more significant adverse income tax consequences. While no one knows what the future brings, an assessment of the family’s needs and concerns should be carefully evaluated. When an annuity names a testamentary trust as the beneficiary, the income tax effect should be closely evaluated. The trustee may be able to mitigate the tax consequences by making what are known as conduit distributions.

Meaning that annuity distributions to the trust may be distributed to the trust income beneficiary. Doing this, however, fails to preserve the principle or corpus of the annuity for the remainder man beneficiaries. The relative tax consequences and needs of the income and remainder man beneficiaries should be considered prior to making distribution decisions.

For all of these reasons it’s a good idea to engage the services of your attorney, CPA, and financial advisor to determine the options associated with any given annuity and to advise as to which distribution election to choose and how to report the annuity on the decedents and estate or trust tax returns. Chapter thirteen IRA Accounts four O one Ks Pensions and Profit Sharing Plans.

You may think that retirement accounts, such as IRA accounts, four hundred one case, pensions, and profit sharing plans are the easiest part of a loved one’s estate to administer. The beneficiary just makes a claim a withdrawal or rolls over the account, right? Actually, a lot of thought should go into the choices that are made prior to actually acting. Retirement accounts pose definite challenges to an estate and

and trust administration due to the income tax consequences, the interaction of the estate, and the beneficiary and required minimum distribution, RMD rules. It’s easy to slip up, resulting in additional tax burden or financial difficulties that otherwise wouldn’t be a problem if you let your professionals guide you through the process. Like annuities, these assets are IRD assets and therefore do not receive a step up.

Ted (01:21:13.066)

In tax cost basis, described in chapter seven. Withdrawals from retirement accounts are generally taxable income to the recipient. Withdrawals from IRD assets are just like a tube of toothpaste. Once you squeeze out the toothpaste, it is impossible to get it back in the tube. Once you make a taxable distribution, even if by mistake, it is impossible to reverse the mistake.

There is a lot of confusion regarding retirement accounts because these accounts are subject to numerous and complicated rules. Rules governing when and how a plann participant must take distributions from a retirement account differs from the rules governing spouses who inherit retirement accounts, and those rules differ for non spouse beneficiaries who inherit retirement accounts.

The Secure Act of twenty nineteen added another layer of complexity because the rules are now different depending on whether the plan participant died before or after december thirty first, twenty nineteen. When a plan participant owns various four hundred one K accounts, pensions and profit sharing plans, he or she can usually roll those over into a single IRA without incurring income taxes or penalties. For example, husband, the plan participant.

Has several different IRA and 401k accounts scattered about from several employers during his working career. Rather than maintaining all of these accounts with their separate investment decisions and distribution rules, husband decides to perform a tax-free rollover of all of these accounts into one IRA account. When husband dies, if his wife survives him, she may roll over his IRA into her own IRA.

Tax free, but before wife rolls over husband’s IRA, she should make certain that rolling over the account immediately after his death is a good decision. If, for example, at the time of death, husband was over fifty nine and a half years of age, but wife was not, there could be a problem with an immediate rollover if wife will require distributions to support herself. This is because by rolling the IRA into her own,

Ted (01:23:33.77)

Any distribution she makes from her IRA before she turns 59 and a half will be subject to a 10% excise tax in addition to the income tax that she will pay on the distribution. If instead she leaves husband’s IRA in place and takes distributions as the beneficiary of his IRA, she will only pay income tax regardless of her age. Assume, for example, that husband dies this year with a five hundred thousand dollars IRA.

Husband was sixty five at the time of his death and wife is fifty-seven. Wife will require fifteen thousand dollars annual distributions from the IRA in order to meet living expenses. If wife rolls over the IRA into her own and is in the twenty-four percent marginal income tax bracket, then she will pay an excise tax of one thousand five hundred dollars plus income tax of three thousand six hundred dollars each year.

For a total tax of five thousand one hundred dollars. The excise tax effectively boosts wife’s tax on the IRA distribution by over forty percent. Rather than rolling over husband’s IRA, the better alternative in this example is to keep husband’s IRA as an inherited IRA until wife attains age fifty-nine and a half. This will allow her to take distributions from her husband’s IRA.

To support herself without the excise tax penalty. She will still owe the $3,600 of income tax, but the distribution will not be subject to the $1,500 excise tax. If, on the other hand, wife is over age $59 and a half and she does not require distributions from the IRA to support herself, then she will likely benefit by rolling over husband’s IRA.

Under this scenario, she won’t be required to take any required minimum distributions until April first of the year after she turns age seventy two. The Secure Act of twenty nineteen changed the longstanding rule that RMD rules must be taken by April first of the year the IRA owner turns age seventy and a half. It should also be noted that the CARES Act of twenty twenty waived RMD rules.

Ted (01:25:54.926)

For all types of retirement accounts for calendar year 2020. Non-Spouse beneficiaries have no choice between rolling over and taking their inheritance as an inherited IRA. With inherited IRA accounts, the Secure Act requires, with some exceptions, that a name beneficiary withdraw all of the funds in an inherited IRA within 10 years of the death of the plan participant.

If the plan participant died on or after january first, twenty twenty. The withdrawals are taxable income in the year withdrawn and there are no annual RMD rules. If the plan participant failed to name a beneficiary, a non spouse that inherits the IRA must, with some exceptions, withdraw all of the funds in the IRA by december thirty first of the year of the fifth anniversary of the planned participant’s death.

The withdrawals are taxable income in the year withdrawn, and there are no annual RMD rules. As you can see, there are opportunities and pitfalls for beneficiaries under these rules. To protect an IRA inheritance from poor tax planning, a spendthrift beneficiary, a beneficiary’s divorcing spouse, creditors or predators, IRA trusts are sometimes used.

When a trust is named as the beneficiary of an IRA, the trustee must be careful to ensure that the identifiable beneficiary IRS rules are satisfied to ensure that the primary beneficiary has 10 years to take distributions from the IRA and are not subject to the five year rule. Having the ability to distribute the IRA over ten years rather than five allows for greater tax planning and flexibility.

depending on the beneficiary’s needs. For an IRA trust to fall under the 10-year rule, it must meet the following criteria. One, the trust must be valid under state law. Two, the trust must be irrevocable or by its terms will become irrevocable upon the death of the IRA owner. Three, the beneficiaries of the trust must be identifiable and four, a copy of the trust instrument must be provided

Ted (01:28:18.552)

To the IRA custodian by October thirty first of the year following the IRA owner’s death. If one of these terms are not met, then depending upon the age of the planned participant when he or she died, the untaxed income inside of the IRA could all be taxed within five years of the planned participant’s death. IRA trusts may also be used in situations where the planned participant intends to split.

The IRA interest between a current income beneficiary and remainder men who would inherit after the income beneficiary’s death. In other words, to provide both for the planned participant’s spouse and his or her children when there was a second marriage, and surviving spouse is not the parent of the planned participant’s children. In these cases, there can be tension among the spouse and children about whether to distribute all of the RMD rules.

Every year for the spouse or to accumulate some or all of the income inside of the trust to preserve it for the next generation. Since accumulating income inside of a trust creates very high income tax liability, these issues should be discussed during the loved one’s estate administration to ensure that everyone is on the same page. The rules are so vast and complicated that there are entire books written on this subject.

I can’t possibly cover all of the tax rules and options available to the family in one chapter of a book intended to provide a broad overview of the estate and trust administration process when a loved one dies. I do plan to write a future book detailing more of the rules and options, but for purposes of understanding the administration of a loved one’s estate, I hope to have driven home the point.

That there’s more to retirement accounts than simply making a claim for the IRA balance. Suffice it to say, therefore, that before taking any action with regard to any retirement account that will be inherited either by a spouse or any other family member, consultation with knowledgeable tax professionals is important. While I don’t wish to knock professionals in the financial field, I am going to offer a word of warning.

Ted (01:30:38.168)

While many financial professionals are excellent at managing investments, many don’t know or understand the complicated tax and trust rules that apply to retirement accounts when a loved one dies, such as with the few examples I offer in this chapter. Please make sure that you have assembled a good team that includes a knowledgeable attorney and CPA. Chapter 14. Safe Deposit Box and Personal Effects.

When someone dies with a safe deposit box in their name individually, the executor has the authority to access the safe deposit box upon issuance of the letters of authority by the probate court. The problem comes when the decedent placed his or her original will in the safe deposit box since, with some exceptions, the probate courts require the original will before issuing letters of authority. Each county probate court in Ohio is

Handles this situation a little differently. In the local court where I most frequently practice, the court requires that a commissioner be appointed who is given the authority to review and report the contents of the decedent’s safe deposit box to the court and to remove the will and file it with the court. An employee of the financial institution, where the safe deposit box is located, is required to be present in the court.

When the box is open. If the commissioner does not have a key, arrangements will need to be made to have the box drilled open. Accessing a safe deposit box after the executor has been appointed does not require any special procedure. The letters of authority issued to the executor by the court allow the executor to gain access to the safe deposit box. If the executor does not have the key, however, it still may be necessary to have the box drilled.

Inventorying the box with a disinterested person is still advisable. It is a good idea to schedule a date and time to open the box and remove its contents and have a bank officer assist in creating an inventory of the contents. It serves to protect the person opening the box from accusations of fraud or theft. The inventory of the box must also be filed with the probate court along with the inventory of all of the other assets of the estate.

Ted (01:33:05.172)

If the estate is subject to federal estate tax, that fact must be noted on IRS form seven hundred six, and the IRS expects a full inventory. Not reporting valuable items that were in the box would likely constitute fraud and may include both civil and criminal penalties. Sometimes family members expect certain valuables to be in the box when the box only includes legal documents like a copy of the will.

Mom told me that her diamond jewelry was in that box is something that I’ve heard on more than one occasion, when in fact the person opening the box told me that no such valuables were inside. So be careful with safe deposit boxes and their contents. Take adequate precautions to ensure that you have independent parties present to catalog and inventory the box at all times. Chapter 15 Challenges to a Will or Trust.

From time to time, the executor, trustee, or one of the beneficiaries expresses concern that the will or revocable trust will be challenged. This is not a common occurrence, but can be serious when a challenge does arise. Therefore, it is important to understand how a will or trust can be challenged. There are generally three main avenues to challenge a will or trust. The first is to allege that the documents were not properly signed by

And witnessed in accordance with the state law where they were signed. Improper execution occurs much more frequently when people create their own wills or trusts or use online services than when an attorney prepares and assists in the execution of the documents. Improper execution can also occur when the testator or settler attempts to change documents by lining through and adding provisions on their own.

These changes are usually not valid and are ripe for challenge. The second most common challenge to the validity of a will or trust is to allege that the decedent lacked legal capacity at the time that he or she signed the document. If the decedent suffered from a mental disability such as dementia or Alzheimer’s disease, at the time the will or trust was created or amended is

Ted (01:35:25.45)

It raises the issue of whether they understood what they were signing and it reflects their true desires for disposition of their property upon their death. The third and most frequently raised issue in a will or trust contest is that the decedent was under undue influence at the time the will or trust was executed, and it contains terms benefiting the person who exerted the influence.

Undue influence is said to occur when certain factors are present. One, a person was susceptible to influence. Two, another person had the opportunity to exert influence over them. Three, there was an exercise or attempt to exercise improper influence. And four, the outcome shows the effect of the improper influence. A will or trust produced by undue influence is void.

But it is not easy to prove these criteria since a key witness, the decedent, is not available to testify. One way to avoid a potential challenge to a will or trust is to request judicial review during lifetime. In twenty nineteen, Ohio adopted a procedure by which a person may petition the court to issue a judgment declaring their will or trust valid before they die.

This procedure gives the spouse, children heirs at law and beneficiaries under the current and prior will or trust the ability to raise and resolve the issues outlined above. It also forecloses the possibility of the will or trust being challenged after death. It should be noted that if a will or trust contest is successful, it does not necessarily mean that the person will be found to have died without a will or trust.

Instead, the person’s next prior valid will or trust, if any, is given effect. Chapter sixteen Professional Fees, Costs, and Reimbursement of Expenses. A common and very reasonable question to ask in any estate and or trust administration is how much will this cost? There will likely be a number of professionals involved in an estate and trust administration, including attorneys, accountants, and

Ted (01:37:47.882)

And financial advisors and appraisers. It may also be necessary to retain auctioneers, surveyors, and a variety of other professionals. In most circumstances, the professional and the executor or trustee will have a formal written engagement outlining the scope of responsibilities and fee for those responsibilities. Attorney fees for a probate estate may be calculated on an hourly or flat fee basis.

Most Ohio probate courts publish a schedule of allowable attorney fees based on a percentage of the value of assets administered. Different percentages apply to different types and values of assets. These fees are presumed to be reasonable, but a beneficiary may object if they think the fee is excessive based on the work actually performed. In some cases, it is appropriate to petition the court to

For authority to pay fees in excess of the fee schedule. The size of an estate does not always portend its complexity or the time required for its proper administration. A good attorney will always track his or her time to determine whether the fee schedule fee is appropriate for a given case. For trusts, there is no statutory or court issued fee schedule. Therefore, it is for the trustee and

The attorney to determine whether the fee will be on an hourly percentage or other flat fee basis. I prefer to charge a fee based on a percentage of the trust assets or other appropriate flat fee. This way there’s a clear understanding from the outset as to the amount of the fee, and the trustee need not worry about being on the clock when interacting with the attorney or law firm staff.

The trustee and executor are also entitled to take a fee. The fee for executors is set by statute and is a percentage of the value of assets administered. Like the attorney fee schedules, different percentages apply to different types and values of assets. There is no statutory formula for trustee fees. Depending on the circumstances, I generally recommend that the trustee take an annual fee for

Ted (01:40:12.918)

Of between 1% and 2% of the value of the trust assets. Trustee fees and executor fees are treated as ordinary income, and the executor or trustee may choose to waive their right to take the fee. Reimbursement of expenses. A common question that I’m asked involves which expenses the estate can and should pay when a loved one dies. Cleaning up the deceased home.

Costs associated with taking care of the remains, paying clergy for the service, and other such expenses are all valid items that can be paid from the estate. The same goes for costs associated with a reasonable reception for those attending the funeral or related services. This is true even in situations where there is a service in two different locations, which may be common for those who maintain two residences.

Paying for other family members’ travel expenses, however, is generally not a valid charge against the estate. Many times this result strikes the family as unfair. In these situations, I suggest that the beneficiaries can agree to use part of their beneficial interest to pay for these types of expenses, although it should be agreed upon in writing beforehand. The agreement should lay out specifically whose beneficial interest will pay for which travel expenses.

Everyone should understand that the payment of these expenses for anyone other than an executor or trustee is not tax deductible. Each beneficiary would be paying for these items with after tax dollars. Can a will or trust be drafted to include a provision to pay for travel expenses of family members? It can. If you want such a provision, I would suggest a cap on the expenses be put in place. Even if such a provision exists,

The dollars would still be after tax expenses. In other words, the provision does not make these amounts tax and deductible. Chapter seventeen The Estate Settlement Program As this short book has illustrated, there are many decisions that have to be made in a typical probate or trust administration. Whenever we lose a loved one, legal, tax, and financial decisions must be made.

Ted (01:42:36.566)

And many of those decisions are time-sensitive. This interferes with the normal grieving process. Often these important decisions become that much more difficult as our judgment is clouded by grief and other emotions. That’s where the estate settlement program helps to provide comfort and clarity during a most troubling time. The estate settlement program is a unique seven-module process that keeps you in control of all major decisions.

while delegating the administrative work to the proper legal, tax, and financial professionals that will identify the issues and lead you to make the best choices possible. We’ll go over many of the issues that I addressed in this book. In fact, I wrote this book as a primer for you so that you might have some frame of reference to fall back upon when we begin discussing the important issues present in your loved one’s estate. With that said,

No one expects you to memorize the lessons that I have written about. It is my experience that merely reading about the process helps you understand what’s about to take place. This is especially true if we helped your loved one draft his or her legal documents and provided that he or she kept them up to date with us. The estate and trust administration should be smooth and

As we implement the good planning that took place back when the documents were signed in our office. So allow me to explain each step of the process in general. Your situation may call for one or more of these modules to be modified. The first step involves becoming familiar with your role and responsibilities when administering your loved one’s estate. The snapshot is an overview of the legal, tax, and financial road.

That we will travel together following the loss of your loved one will help put everything in order so we can begin the administration process. Upon completing this step, you’ll have begun to delegate the worries to those that have experience dealing with these problems. If you are going to serve as the trustee andor executor, we can accomplish the following steps with you locally, or if you live in another community.

Ted (01:45:00.066)

We can communicate with you over the telephone and through the mail. We’ll find out what your expectations and goals are in administering your loved one’s estate. We’ll help you consider matters germane to your loved one’s estate, including many of the issues that I reviewed in the preceding chapters. These may or may not include some of the following questions. Do you understand the will and trust documents? We’ll walk through them with you so you know how they work and

And what they mean? How do any marital trusts for the surviving spouse and any children’s trusts and distributions work? And how is this all accomplished? Does the will or trust provide for these multiple generations of the family? And are there any competing interests? If so, how do you best promote family harmony? Who has the position of authority as executor or trustee? And what obligations does that person have?

To carry out the administration of the estate? What opportunities are there to save taxes? What do you do with joint accounts or property? What do we do if someone should challenge the will or trust? When are you supposed to make distributions to the beneficiaries? Is the estate illiquid, meaning that we may have to sell certain properties to pay ongoing living expenses or taxes? If so, what assets do you deem the best to consider?

For such sale? Are there any retirement accounts, pensions, or life insurance policies? And how do they fit into this picture? Are any of the beneficiaries or their spouses spendthrifts who may blow through their inheritance? And if so, is there anything we might do about that? How do you deal with cars, boats, or mobile homes? We’ve dealt with all of these and other issues countless times and have the proven experience to guide you through the solution.

That is right for your situation. Step two legal. In any estate administration, the legal documents govern the wishes of the deceased and determine the ultimate outcome of who benefits from the estate or trust. Moreover, a myriad of notices and other court documents must be filed under Ohio law. This module of the estate settlement program serves to organize these important documents.

Ted (01:47:22.424)

These governing documents such as the will and trust legal filings and official documents are necessary to properly administer your loved one’s estate or trust, will help you gather these documents and take note of important information such as the beneficiaries of the estate and any creditor notices. Step three Assets As mentioned in chapter two and chapter three, the marshalling and identification of all of your loved ones’ assets is

Is paramount to the administration of the trust or estate. This includes those owned individually, in trust or in joint name with someone else. Implementation of new tax cost basis and discussion of prudent asset management during the course of the administration with members of your financial team is very important. One of the first responsibilities of the executor or trustee in an estate administration is to marshal the assets.

obtain date of death values for tax reporting purposes, and to determine whether the assets and portfolio should be adjusted to meet the needs of the estate and its beneficiaries, where the assets are located, how they are titled, owned, and what they consist of drives almost all of the decisions to be made during the course of the administration. Step four Creditors. Our office has extensive experience administering estate

And trust proceedings in accordance with state law. It is our specialty. We know when we have to open a probate proceeding and when an abbreviated proceeding is adequate. We know how to handle creditor claims to avoid them when possible, and to ensure that you can’t be held personally responsible for their payment. This stage of the process leads you through the legal requirements to satisfy one of the most important obligations. Step five.

Taxes. This stage of the process concentrates on a very important element of any estate administration, the proper reporting and payment of taxes. This module includes the identification of any gift estate and income tax returns that may be necessary to be filed, as well as planning for any required minimum distributions due. Further, coordination with the CPA and financial advisors is

Ted (01:49:49.012)

is implemented to minimize taxes and achieve objectives, it will be important to have a qualified tax return specialist on the professional team, preferably a certified public accountant, CPA, who is well versed with income, gift, estate, and generation skipping transfer tax reporting. Step six, distributions. In order to protect the executor or trustee from liability and to comply with the law,

An accounting is prepared and is delivered to the beneficiaries. The beneficiaries are asked to review and approve the accounting, from which point distributions are made. Some distributions may be outright, where others may be held in continuing trusts. This module of the estate settlement program serves to lead you through this process. It may include both ongoing and necessary income distributions. To the surviving spouse, if applicable,

And or other beneficiaries during the course of the administration. The distribution of specific bequests, including tangible personal property, and ultimate distribution of the estate or trust to the beneficiaries, andor establishment of continuing trusts for their benefit, are all facets of this penultimate module. Step seven wrap up. Upon completion of the estate and trust administration.

We will review any wrap up items or help you consider whether your own estate plan might need an update. We will explain the maintenance of any testamentary trusts that were established under your loved one’s will or trust and can serve as an ongoing legal representative for those matters. You may wish to consider revisiting your own estate planning with the family estate and legacy program offered through our office, piecing your life back together.

It is our sincere hope that the estate settlement program process helps you piece your life back together, and that you will no longer worry about the legal, tax and financial concerns that you may have had just after your loved one’s passing. Keep in mind that this is a journey that will last several months and that we will be there for you every step of the way. Once we have had our initial conversation and

Ted (01:52:10.444)

My office will put together our firm’s engagement letter outlining both your and our responsibilities, including the price that the estate will pay for our services. All of the professional fees and costs associated with this administration will be paid from your loved one’s estate andor trust assets and should be tax deductible on either the estate or income tax returns. We’ll review your choices with you to ensure that you and your family are treated fairly and

For the work that will be necessary to take you through this process. Thank you for taking the time to listen to this book. I hope that it was helpful. We look forward to serving you. If you would like help with any of this, please call our office at nine three seven eight nine eight five five eight three to schedule your free snapshot meeting with one of our probate and trust administration attorneys.